Key Concepts
   • A bond is a contract by a 
    corporation or the government 
    promising to repay borrowed 
    money, plus interest, on a fixed 
    schedule.
   • The amount that the bond issuer 
    promises to pay the buyer at 
    maturity is its par value.
   • Maturity is the date the bond is 
    due to be repaid.
   • The coupon rate is the interest 
    rate a bondholder receives every 
    year until a bond matures.
   • The yield is the annual rate of 
    return.
          Why Buy Bonds? 
   • There are two reasons to invest 
    in bonds—the interest paid on 
    bonds and the gains made by 
    selling bonds.
   • Most people buy bonds for the 
    interest.
   • Generally, bonds are considered 
    less risky than stocks b/c 
    bondholders are paid before 
    stockholders.
   • Generally speaking, bonds with 
    longer maturity dates have 
    higher yields than shorter dates, 
    b/c they are seen as having 
    higher risk. 
               Types of Bonds—
           U.S. Government Securities
   • Bonds are classified on who 
    issues the bonds.
   • The U.S. Government issues 
    securities called Treasury bonds, 
    notes, or bills.
   • Treasury bonds help keep the 
    federal government operating.
   • Treasury bonds have the longest 
    maturity (more than ten years) 
    and Treasury bills having the 
    shortest (one year or less).
   • They are backed with the “full 
    faith and credit” of the federal 
    government they are considered 
    risk free.
           Types of Bonds—
           Municipal Bonds
  • Bonds issued by the state and 
   local governments are called 
   municipal bonds.
  • Funds raised by these bonds 
   finance government projects 
   such as construction of roads, 
   bridges, school and other 
   public facilities.
  • The interest earned on these 
   bonds is tax free.
  • These are usually seen as risk 
   free but there have been 
   states and cities that went 
   bankrupt . 
           Types of Bonds—
           Corporate Bonds
  • These bonds help businesses 
   expand.
  • These bonds generally pay a 
   higher coupon rate than 
   government bonds b/c the 
   risk is higher.
  • One kind of corporate bond, a 
   junk bond, is considered high 
   risk but has the potential for 
   high yields.
  • The risk involved with 
   investing in junk bonds is 
   similar to that of investing in 
   stocks.